Financial Innovation

Question 1

what is financial innovation

Answer 1

Financial Innovation refers to any change in the scale, scope and delivery of financial services, and is the act of creating and then popularising new financial instruments as well as new financial technologies, institutions and markets.

Question 2

what are features of financial innovation

Answer 2

additional sources of funds, enhancing liquidity, transferring risk, and can address asymmetric information problems.

Question 3

how can financial innovation be measured

Answer 3

Financial R&D Intensity
Securitisation

Question 4

what are causes of financial innovation

Answer 4

Instability of the Financial Environment
Regulation
Development of Technology.

Question 5

discuss modern payment systems

Answer 5

A central ledger facilitates all transactions, which is usually undertaken by the central bank.

Question 6

discuss innovations in payment technologies

Answer 6

wrappers (Apple Pay)
mobile money (Mpesa)
Credits and Local Currencies (Bristol Pound)
Digital Currencies (Bitcoin)

Question 7

Discuss digital currencies

Answer 7

use of a distributed and decentralised ledger that allows payments to be made in a decentralised way.
Purpose was to create an alternative way for people to send money between one another that operated free of central control. This allows for transactions without the need of intermediaries, which inevitably increases the speed and reduces costs. Another advantage is that all transactions and data on the network is secure and legitimate

Question 8

Discuss CBDCs

Answer 8

Central banks across the world are exploring the potential for shifting parts of their money transfer and payments systems onto blockchain technology or even using it to launch digital currencies. These are known as Central Bank Digital Currencies (CBDC’s). Currently, cross-border payments and money transfers are reasonably slow, include excessive costs, and are reliant on the facilitation from various intermediaries. Through the use of blockchain, money transfers and payments could reduce the number of intermediaries needed and therefore reduce costs. This simultaneously increases the speed at which transactions can take place simply due to the elimination of these intermediaries.

Overall, blockchain can definitely positively impact the relationship between the banks and customers, and create greater transparency.

However, it is estimated that the carbon dioxide emissions from the bitcoin mining network amount to as much as 22.9 million metric tons per year.